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IBM Buys Cloud-Based Analytics Vendor DemandTec  for $440M
IBM Buys Cloud-Based Analytics Vendor DemandTec for $440M

By Jennifer LeClaire
December 9, 2011 4:08PM

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"IBM is all in on analytics. The Watson division is basically a massive analytics engine. IBM has recognized in the age of Big Data that companies that can turn that data into gold will be king," said Rob Enderle, principal analyst at Enderle Group. "Analytics is what turns Big Data into gold. So expect to see IBM do a lot more in terms of analytics."

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As Cisco moves to market with CloudVerse, IBM is making its own cloud move with the acquisition of DemandTec. Big Blue snapped up the cloud-based analytics company for $440 million, or $13.32 a share. It's all about Big Data.

IBM expects DemandTec to extend its Smarter Commerce initiative by adding cloud-based price, promotion and other merchandising and marketing analytics that help companies better define the best price points and product mix based on customer buying trends. Again, it's all about Big Data.

"Bringing science to the art of pricing and promotion is a big part of this strategy," said Craig Hayman, general manager of Industry Solutions at IBM, "and the combination of DemandTec and IBM will help marketing and sales executives in retail and other industries drive more revenue and increase profitability."

Predictive Pricing Models

IBM estimates the market opportunity for Smarter Commerce at $20 billion in software alone. Big Blue has watched organizations struggle to meet the demands of rapidly shifting customer buying patterns in a mobile and social networking era. From setting and executing the right pricing strategy to the ability to automatically adjust pricing based on online and offline data and beyond, being nimble is a key competitive advantage IBM wants to help deliver.

Specifically, by extending these capabilities to the cloud, IBM is working to give organizations real-time access to consumer information. DemandTec's cloud-based analytics software lets organizations examine customer buying scenarios, both online and in-store. This empowers merchandising executives to spot trends and shopper insights to make better price, promotion, and assortment decisions that increase revenue and profitability.

Here are some examples: A retailer could, using this software, predict how consumers will respond to a price change before flipping the switch. Or, a brand manager can adjust the marketing mix for a product to better drive sales in the grocery channel. A merchant and supplier can work together to understand how one shopper segment differs from another to craft the best merchandising plan.

Analytics Wins

"IBM is all in on analytics. The Watson division is basically a massive analytics engine. IBM has recognized in the age of Big Data that companies that can turn that data into gold will be king," said Rob Enderle, principal analyst at Enderle Group. "Analytics is what turns Big Data into gold. So expect to see IBM do a lot more in terms of analytics.

"This is their primary investment effort for the upcoming decade. If it fills a hole and it has to do with analytics, IBM will probably buy it or build it."

DemandTec also expands IBM's Software-as-a Service strategy by adding additional, subscription-based offerings to IBM's SaaS solutions portfolio. DemandTec also brings a portfolio of 31 patents in the areas of pricing, response analysis, and promotion analysis to the IBM table.

The company has about 450 customers in retail, consumer products and other industries. Retail industry segments served include grocery, drug, convenience, consumer electronics, office supplies, apparel, department stores, and quick-serve restaurants. Manufacturer segments include fast-moving consumer goods categories such as food, beverage, and health and beauty.

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